Dutch supervisor De Nederlandsche Bank (DNB) has warned pension funds against investing too much locally, as this would make them susceptible to economic cycles in the Netherlands.

Dutch schemes invest approximately 20% of their investment portfolio within the Netherlands, according to DNB statistics.

Speaking during a meeting about sustainable investment on Wednesday, Gisella van Vollenhoven, DNB’s supervisory director for pension funds, said she was sceptical about increasing this percentage.

“Given the fact that the Dutch economy is merely 1% of the world economy, 20% is a lot relative to other countries,” she said.

Van Vollenhoven’s warning was at odds with Dutch politicians, who have urged pension funds to increase their local investments, for example to help finance the energy transition.

“Investing too much in the Netherlands poses a risk, as schemes would become very susceptible to local economic cycles,” the DNB director said.

“During an economic downturn, there would be a ‘triple whammy’, as pension fund participants could lose their jobs, the value of their homes could drop below the value of their mortgage, and either pension contributions would rise or pensions would be reduced.”

However, she declined to specify whether there should be a hard limit on domestic investment, saying that “this would differ per pension fund and would be a board’s responsibility”.

Sustainable investments

In her opinion, focusing on Dutch investments was not the same as increasing sustainable investments in general, as “more green investments would not lead to less diversification”.

The director highlighted that increasing sustainable investment could even limit certain risks, including policy shocks.

“For example, all property investors must have at least energy label C by 2023, which poses a risk to investors who don’t know the current energy label of their real estate,” she said.

Another risk could be government measures to discourage the use of diesel engines, she added.

Social affairs’ minister Wouter Koolmees, who attended part of the meeting, said pension funds could play an important role in financing the transition into a more sustainable economy.

“But the government shouldn’t force such investments, as this is to be decided by employers and workers,” he said.

As an example of sustainable investments in the Netherlands, Koolmees cited the thermal insulation of approximately 7,000 school buildings.

“However, the problem is that all these schools have their own board, but they often don’t own the building,” he said.

According to Koolmees, Invest-NL – a new government organisation focusing on opportunities for local investment financing – was to address the issue next year.

The event was organised by asset manager APG and pensions think tank Netspar.

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